In recent years, revenues of many professional sports teams, particularly in Major League Baseball, have increased significantly because of a boom in local television revenues. The values have continued to rise in recent years because of the inflation of America’s collective cable and satellite bill. However, few people fully understand why this is the case. Even if someone had no association to a team or channel, simply by paying for cable television they would be contributing to the cause. Each time a cable bill is paid, the channels collect a small fee. The most highly demanded channels are able to bargain for higher fees. As it turns out, most of these are sports channels. For example, according to Wunderlich Securities, ESPN brings in a staggering $10 billion annually. They gain $3.5 billion from what expected sources, such as television, digital, and magazine advertisements. They bring in the remaining $6.5 billion from cable and satellite affiliate fees. ESPN charges cable companies $5.06 per month per subscriber, which when multiplied by 100 million subscribers gets you to the $6.5 billion figure. Much of this comes from consumers who never so much as think of turning the channel to ESPN. This is the genius, or scam, of the sports cable bubble: tens of millions of customers paying at least $100 a year for sports they never watch but indirectly giving billions of dollars to these industries.
The consequences of these seemingly endless streams of revenue is an example like Time Warner Cable being able to offer the Los Angeles Dodgers $7 billion for the rights to broadcast their games. As a result, the Dodgers payroll, in a league with no salary cap, is essentially infinite. The Dodgers were able to increase their 2013 payroll to a whopping $241.7 million, an unheard of 112% increase from the 2012 figure of $114.1 million. The franchise rises in value, the players make more money, the team wins more games, and, ironically, non-sports fans are paying for most of it. Because of the Dodgers deal, Time Warner is expected to launch a SportsNet LA channel that charges subscribers $5 monthly.
According to Bloomberg BusinessWeek, fees for televised sports are rising almost twice as fast as cable subscriber rates, which putting providers in a bind. They are forced to choose between hiking prices to compensate at the risk of customers leaving, or they must stay faithful to their customers and deal with smaller profits. Consumers and providers alike are beginning to complain publicly about the inequitable qualities. However, little appears to be changing in the near future.
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Frank Luby
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